1. BULGARIA – ECONOMIC PROSPECTS
PLAMEN ORESHARSKI
MINISTER OF FINANCE
December 13, 2006
Kempinski Hotel Zografski

2. 2006 – ECONOMIC INDICATORS :
High economic growth - around 6%
Dropping unemployment rate
Financial stability and high level of confidence
Prudent fiscal policy
Government debt below 30% of GDP
FDI cover more than 100% of the current account deficit
Moderate inflation

3. ECONOMIC GROWTH
Most dynamic economic sector is industry (real growth of 9% for the first half of 2006)
Growth is driven by domestic demand
High investment activity due to the highly rated business environment and the positive expectations
Higher domestic demand

4. HIGHER THAN THE AVERAGE FOR EU GROWTH RATES

5. INFLATION
The expected for 2006 inflation is around 6%, the average for the last three years being 5.4%.
Almost half of the annual inflation is due to the changes in the administrative prices.
The rising of excise duty on tobacco products in 2006 forms 2.7 percentage points of the price increase during the year.
The inflation of market prices (80% of CPI) stayed low – 2.8% for 2006.

6. FOREIGN DIRECT INVESTMENT
The prospect of EU accession is an important factor for attracting FDI
The economic and political stability are a guarantee for the interests of foreign investors
The annual average FDI growth rate in the period is expected to be 8-10%

7. BALANCE OF PAYMENTS AND CURRENT ACCOUNT
Foreign trade is the reason for the high current account deficit
High imports are due to the growing sales of Bulgarian companies and the investment activity in the country
High FDI and European funds inflow will foster imports in the short term
Exports are expected to reverse the current account flows in the coming years

8. ENHACING ECONOMIC INTEGRATION
The share of Bulgarian exports in the overall [external to] EU imports doubled from 0.47% in 1999 to 0.87% in 2006.
Increasing the share of EU25 in the overall Bulgarian exports from around 42% in 1995 to 57% in 2005;
Over 80% of FDI in 2005 are from EU Member States

9. LABOR MARKET (1)
Improvement of the labor market as a result of the stable economic growth.
Private sector of the economy – as a source of higher employment and income of the population growth.
Employment rose by around 4% in the period January – September 2006.
Unemployment rate registered its lowest level since 2000 (9.1%).

10. LABOR MARKET (2)
Sustainably dropping unemployment rate from over 18% in 2001 down to around 10% in 2005

11. INCOME AND LABOR PRODUCTIVITY
The income of the population continues to rise, but do not exceed labor productivity growth.
For the period labor productivity registered 7.9% growth, while real average wage - 4.9%
Since the beginning of 2006 real average wage has grown by 10.4% in nominal terms and by 2.4% in real terms.

12. BUDGET EXECUTION
High economic growth and good tax collection ensure good revenue performance
Tight fiscal discipline as regards expenditures
The surplus counteracts the current account imbalances too

13. GOVERNMENT DEBT
Prudent fiscal policy ensured the smooth government debt reduction
Considerably lower service costs

14. MEDIUM TERM FISCAL POLICY
Main objectives: to help maintain economic stability and sustainable economic growth
Medium term fiscal policy will stick to the Stability and Growth Pact
budget balance within the Maastricht criteria, while maintaining budget surplus
avoidance of pro-cyclic policy
Focus on the quality of public finance and EU Funds absorption
Medium term fiscal policy aims are set forth in the convergency program of the country for the period

15. MONETARY POLICY TRENDS AND STABILITY OF THE CURRENCY BOARD ARRANGEMENT
Committing to shortly join the Euro Area and introduce the Euro, while meeting the criteria
Maintaining the Currency Board Arrangement stable until joining the Euro Area and keeping the current exchange rate
Despite the negative impact of some external factors the BNB FX reserves sufficiently cover the money base
Sources: BNB, AEAF

16. BANKING SECTOR: DEVELOPMENT AND MAJOR CHALLENGES
Enhancing financial intermediation
Regulation of commercial banks’ operations in line with the Basel II requirements
Curbing credit growth as a result of the BNB administrative restrictions and maintaining good quality of bank credit portfolios
Cancelling the Central Bank’s credit measures as from the beginning of 2007
Strengthening the competition in the sector due to the integration of the banking system into the common European financial market
Dynamics of Credit Portfolio
Sources: BNB, AEAF

17. FISCAL STANCE – BUDGET SURPLUSES
Source: Eurostat

18. FISCAL STANCE – DROPPING PUBLIC DEBT LEVELS

19. CONVERGENCE OF LONG TERM INTEREST RATES

20. INFLATION CRITERION *tradable goods and market services
Source: Eurostat

21. PREPAREDNESS FOR EUROPEAN FUNDS ABSORPTION
Programming
- National Strategic Reference Framework – and 7 Operational Programs
- National Strategic Plan and Rural Development Program –
- National Strategic Plan and Fisheries and Aquaculture OP –
Institutional and administrative capacity
Systems for audit, internal control and transparency of funds management

22. STRATEGIC DOCUMENTS Community Strategic Guidelines
National Strategic Documents
National Strategic Plan for Fisheries and Aquaculture
National Strategic Reference Framework
National Strategic Plan for Rural Development
Operational Programmes
Regional Development
Development of the competitiveness of Bulgarian economy
Human Resources Development
Environment
Transport
Administrative Capacity
Technical Assistance

23. PROGRAMMING OF THE STRUCTURAL AND THE COHESION FUNDS (1)
NSRF – Vision and midterm objectives
As of 2015 Bulgaria will have become a competitive EU Member State with high quality of life, income and a socially sensitive society
Enhancing the competitiveness of the economy so as to achieve high and sustainable growth;
Human capital development to ensure higher employment, income and social integration.

24. PROGRAMMING OF THE STRUCTURAL AND THE COHESION FUNDS (2)
To attain the midterm objectives, the SF and CF interventions will focus on four strategic priorities – three thematic and one territorial :
improving basic infrastructure;
raising the quality of human capital with focus on employment;
promoting entrepreneurship, favorable business environment and sound governance;
maintaining balanced regional development.

25. INSTITUTIONAL FRAMEWORK FOR STRUCTURAL INSTRUMENTS MANAGEMENT
Certifying
Authority
Central Coordinating Unit
NSRF Monitoring Committee
Managing Authority OP
OP Monitoring Committee
Audit Authority
Intermediate Body
Internal Control
Final Beneficiary

26. PLAMEN ORESHARSKI MINISTER OF FINANCE
THANK YOU!
PLAMEN ORESHARSKI
MINISTER OF FINANCE